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green@work : Magazine : Back Issues : May/June 2004 : Cover Story

Cover Story

Less is More

by Katie Sosnowchik


More Cover Story Articles

Side Bars
Doing Business Worldwide
A Gold Standard
A High Performance Showcase

At first glance, it appears that Johnson Controls’ two business units—buildings and automobiles—couldn’t be more different. The Controls Group, now in its 118th year, focuses on ways to improve building performance. The automotive unit—a youngster in comparison at only 25 years old—provides interior systems and batteries.

But a second look reveals a different perspective, explains chairman and CEO John Barth, a 35-year veteran of the Milwaukee, WI-based company. For while one division focuses on fixed structures and the other on mobile transport, the truth is that what Johnson Controls (JCI) actually brings to the market is environmental efficiency. The products it makes and the services it provides for both buildings and automobiles helps customers save energy, reduce pollution and waste, and increase recycling.

In a time when everyone is trying to do more with less, Johnson Controls is ready, willing and able to help them achieve just that. With 57 consecutive years of increased sales (2003 sales totaled $22.6 billion), 13 consecutive years of increased earnings, and 28 consecutive years of higher dividends paid to stockholders (dividends have been paid every year since 1887), the company has obviously figured out how to serve its stakeholders—shareholders, employees, customers and the communities in which it operates—successfully and, as Barth explains, sustainably.

Barth is not your average Ivory Tower chairman. You will often find the soft-spoken executive visiting any one of the company’s 500+ facilities worldwide as he champions Johnson Controls’ mission: to continually exceed customers’ increasing expectations. Barth’s visits many times include awards presentations to employee teams for customer service efforts that have gone above and beyond.

Barth, himself, is especially proud of three honors the company has recently received. The first, the 2004 World Environment Center Gold Medal for International Corporate Achievement in Sustainable Development, is given to companies that display preeminent industry leadership and contributions to worldwide environmental quality and sustainable development. Johnson Controls also was one of only two companies invited to join the Billion Dollar Roundtable in 2003, comprised of the 12 U.S. companies that spend more than $1 billion annually with diverse suppliers. This supplier diversity was recognized by the National Minority Supplier Development Council, which named Johnson Controls the 2003 “Corporation of the Year”—the first time a non-consumer products company was selected for the honor. And while these awards seem to single out specific efforts, what they really recognize, says Barth, are the high expectations the company has set for itself in the areas of economic, environmental and social performance, a commitment he describes as part of the very essence of the company’s DNA.

“We define sustainability through our values,” Barth wrote in the company’s 2003 sustainability report entitled Living Our Values. “Our policies flow from our values, which define our corporate culture.”

Recently, the company has put a name to its commitment to sustainability: Blue Sky. This initiative encompasses the many programs, sponsorships and events that affect personal employee growth and reflect environmental stewardship. (See illustration on opposite page.) Blue Sky is intended to identify the company’s “global cause,” which in turn provides a strategic approach to community involvement and philanthropic efforts while furthering business goals.

The first component of the program, Blue Sky Environment, was launched in May 2004 in more than 500 of the company’s locations worldwide. As part of the kickoff, employees from the United States to Brazil to Germany and Japan focused on the company’s commitment to the environment. Location managers held environmentally-related events to engage employees in the company’s commitment to the environment and to increase awareness of how Johnson Controls helps its customers use resources more efficiently.

A second component, Blue Sky Leaders, will launch in the fall of 2004. A Blue Sky advisory board includes global management representatives who counsel about activities related to sustainability from an environmental and a leadership development perspective, as well as from a global business perspective.

We recently sat down with John Barth to talk about Johnson Controls and its unique position in the marketplace, especially during a time when escalating gasoline prices dominate headlines and the subject of traditional versus alternative energy sources seems likely to become an important issue in the upcoming presidential campaign.

What are some of the environmental opportunities unique to Johnson Controls?

BARTH: Johnson Controls is in a unique situation considering the two major markets that we’re involved in—the commercial buildings market and the automotive business. As we began to dedicate ourselves to our second 100 years, we realized that energy management and energy efficiency in the environment is really what we take to the market; that’s what we are selling. Energy efficiency was always a part of our values, but it’s now part of our vision, something we actively market and sell. Our customers on the control side of the business expect us to be the experts; we not only tell them what they can do to manage and make their buildings more efficient and comfortable, but then we also walk them through the process and tell them exactly how to make that happen.

On the automotive side, we have two segments. One is our automotive battery segment, a product that may be the most recycled product that exists—over 90 percent. As we look at the battery market over time and the drive toward fuel efficiencies and new technologies, we now have to lead that transition. When you’re talking about 50 to 75 percent improvement in fuel efficiency, it’s critical for us to drive that market as opposed to responding to it. To maintain our leadership on a global basis, it must be part of the core fundamentals of how we manage and run our business.

We also have the automotive interiors side of the business. We realized many moons ago that our customers recognize the value that is created when more weight is taken out of the automobile. We are a full service supplier, which means that we go from the concept or innovation to the end-product or system. It’s important how you assemble things and deliver them on a just-in-time basis so that you take out all waste in the delivery process. In addition to that, in the last couple of years we have also focused on disassembly or what we call “design for reusability,” so that some components can come apart for reuse as is, while others can go back into the recycling stream.

When you think of a company like Johnson Controls—what better way to lead a company than to drive the whole environmental issue?

HOW DOES THE CURRENT ENERGY SITUATION IMPACT JOHNSON CONTROLS?

BARTH: It certainly plays into our strategy. For many, many years, energy efficiency has been our core. In the controls side of our business, we have been taking what we call performance contracting to the market—in schools for example—where we look at energy consumption, efficiency and comfort. We can provide a business scenario where we can project the investment necessary to deliver both savings and value. Beyond that we have a whole curriculum we take to schools where we educate kids, and help teachers supplement curriculum. On the higher education side, we give college credits for students who participate in these programs. It’s a whole awareness and understanding of why we are doing this, what it’s all about and identifying the value and long-term benefit of doing business with Johnson Controls. You could just install a low cost thermostat on the wall, but the savings begins and ends with that, whereas we can provide value for the life cycle of the building.

What are some of the biggest obstacles that you have had to overcome?

BARTH: On the buildings side, we are an integrator of technology processes and products so that when we go into a building we can provide more long-term opportunities. We have to create a compelling business scenario equation that allows our prospective customer to think broader than just that thermostat on the wall—maybe renovate the facility or construct a new facility that will save the customer more money. These discussions aren’t always that easy.

In the automotive case, many times we are talking to one customer, but across various product lines from SUVs to compacts to mid-size sedans and so forth.

Those decisions for multiple opportunities don’t happen all at the same time. But we continually try to differentiate ourselves by bringing new offerings and new technologies and more value to the partnership than the next guy.

Industry Week magazine named Johnson Controls one of the 100 best-managed companies in the world. What do you think contributed to this recognition?

BARTH: I think it’s because we live our values. We understand what is important and we focus on the triple bottom line. We don’t try to do a hundred things, we try to do a select few that are important to our business and do them world-class. We also have a firm commitment to the customer; they are our partners. We want to continually do more for them so that they can become more successful. We have a unique culture within our company that I believe has let us survive for 118 years and be as successful as we’ve been.

We don’t go out and run a bunch of billboard ads. We are much more comfortable when we have our customers recognizing us than doing it ourselves. To do otherwise would be sort of like changing the DNA of Johnson Controls. I’m only the seventh CEO in 118 years, so we don’t have a lot of change. I’m not saying we don’t continue to drive change within the company—we do a lot of that. But what we don’t do is promote change just for the sake of change. We change if it’s important to the market, if it makes us better able to respond and continue to be a leader. Our businesses are in very competitive arenas. We have been successful because of our focus and commitment; we understand the strengths of JCI and what they bring to our partnerships.

HOW DO YOU COMMUNICATE THE VALUES OF A PARENT COMPANY BASED IN MILWAUKEE TO YOUR OPERATIONS THOUSANDS OF MILES AWAY?

BARTH: Obviously the internal communications that we use on an ongoing basis support our values and identify our priorities. We all travel a lot and I spend at least two weeks a month outside of the country. We have a culture where we sort of “kick the tires” when we’re out there, making certain we communicate the values. Remember: this didn’t start with me, it started with my predecessor and his predecessor and his predecessor. Every time we communicate, every time we meet, every time we have a chance to communicate, we stop and talk about our vision. Our Ethics Policy brochure is translated into 14 different languages. We all wear pins to remind us of our commitment to the vision and, I think, remind us that there is a right way to do business. It has something to do with Johnson Controls and what we represent.

Do you find that the concerns of Johnson Controls’ employees are the same worldwide?

BARTH: I think so. People are interested in what’s important to the company and where we are trying to go. We communicate across all of our business units. We sometimes transfer folks from controls to battery to automotive and they take best practices with them. Our people are concerned about the environment. They can see what we stand for. In some parts of the world employees bring their families into the plants on Saturday and Sunday because they are nice places to be. It’s great to be a part of something like that.

DO YOU ENCOURAGE YOUR SUPPLIERS TO ADOPT YOUR VALUES AND PRIORITIES?

BARTH: Certainly with our major suppliers we do. It doesn’t do us any good if we are very good at something, but the entire supply chain or the value chain or the life cycle isn’t. We have to look at the entire chain and make certain that we’re driving progress, whether it be, for example, recyclability or diversity. We do require an understanding and commitment. We try to develop strategic partnerships so that, knowing where we want to be 10 years from today, we can put things in place that focus in on that goal. So if we have a supplier that we want to be a global supplier for us or one we just use within the U.S., we try to understand their manufacturing footprint and their processes today and those that will be in place five or 10 years from today. We try to change our relationship from a tactical day-to-day relationship to one that’s long-term. Once you make that commitment then everyone is more comfortable and it sends signals to our organization, as well as to the supplier, that support making the investments and putting the resources in place that drive the processes. Sometimes we have tough discussions, maybe because of our needs or, even more important, because of our customers’ needs. I believe in those cases our discussions with our suppliers become more strategic and allow us to talk about the environment, talk about energy, talk about footprints, talk about diversity, talk about inventory turns. We didn’t get in the Billion Dollar Roundtable overnight—it took us about eight years to get there once we set our sights on the goal. These things have to be sustainable over time and, if they aren’t, then all of a sudden somebody is paying the price because you have to start all over again and figure out a new relationship or strategy.

I would like to tell you one other thing. We have been very successful with foreign automotive companies. How did that happen? Because 20-plus years ago we had the foresight to develop strategic partnerships and exchange technologies. I’m not saying that we always agreed, but we were able to develop relationships and trust and confidence. So as their business has expanded globally, it’s been only natural to bring JCI along. I think when you look at the partnerships that we have established on our control side or on our battery side, it’s no different there.

Are there certain technologies in the future that you think will impact your business more than others?

BARTH: On the battery side, a couple of things are happening. First of all, both automakers and consumers are wanting more electronics in vehicles. So there is a need to provide more energy management within vehicles and it has to include light weighting and it has to include new chemistries, it has to include evolving to hybrids, which results in fuel economies. So the battery—or the energy management system in vehicles—is going to change pretty dramatically over the next 10-15-20 years. If you look at our position in that market today, we have to be a leader in driving that technology and working with our customers for all that to happen. The end result is that we are going to get a whole lot more neat stuff—surprise and delight—inside a vehicle. The consumer is going to like it, the vehicles are going to weigh less, the vehicles are going to be recyclable and energy efficiency is going to be a whole lot greater.

The same things are happening in buildings. When you consider that about 40 percent of the energy consumed in the world is within buildings, just think of the opportunities that presents. We happen to be in a unique position that the two major markets that we serve allow us to keep energy efficiency on the forefront and be a leader in the next 100 years.

What did Johnson Controls learn about itself when going through the Six Sigma or ISO 14001 certification processes?

BARTH: ISO 14001 has allowed us to have an environmental standard globally. We always had what we call standard business or operating practices—our customers expect us to act and behave in the same fashion wherever we are in the world. So we have put a lot of internal business processes in place to make that happen. If we make an improvement in one place, we can improve everywhere. Six Sigma gave us the methodology and the analytical ability and the process to take this to another notch—to drive waste and cost out, improve our operating processes and the robustness of the products we take to market. When we first brought Six Sigma into the company, I personally visited with the Six Sigma academy at least three or four times because we didn’t want a canned approach. It had to be something that our organization would embrace. Once we started it, then we measured ourselves against all the other companies that you read about that embrace Six Sigma on how fast we were able to implement it, how we improved the quality and processes of JCI and how we improved the return to either our shareholders or, in many cases, to our customers. The demands of the market are such that every time you want to improve your bottom line a little bit, you have got to improve your customers’ a whole lot. Six Sigma was a way for us to do that—it made it more of a science than an art.

How do you keep employees motivated to keep going and not just be satisfied with where they are at today?

BARTH: We know our values and the five or six things that are really important to us. We live it throughout the organization and we touch on it a lot. When you are able to develop a culture, it gives you opportunities to raise the bar and put expectations in place that are self-perpetuating. The better you get, the better you get at it.

We have customers that are expanding and want to continue to expand. In order for us to share in that growth, we have to provide value in our relationships. I believe we are able to partner uniquely with each customer, we are able to understand who the customer is and, as a result, there is a commitment that goes along with that. Fortunately we are dedicated to living up to those commitments.

So what’s next for Johnson Controls?

BARTH: We will continue to do what we do well. We have two great businesses that have tremendous growth opportunities. There’s so much interplay, even though we are in totally different markets. If you look at the innovations and the technology and our efforts to drive the sustainability aspect from the perspective of the environment, energy, comfort. . . you couldn’t be in a better seat than mine.


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